Decision Makers Guide - DMG42038

Holiday pay

When employment ends outstanding earnings and holiday pay are normally paid on the final working day or pay-day. An employer

• is legally obliged to make payment of all outstanding earnings and holiday pay on the final working day if the employer has ended the contract without giving the required notice1 and

• may rely on the pay-day provided by the contract of employment if

• the employment has run its course, for example a 3 month engagement when the date of payment is usually the last day of employment or

• the employee has given and served due notice of leaving. The date of payment is usually the last day of employment or

• the employee has ended the contract without giving the required notice. In this case the date of payment is unlikely to be the last day of employment.

Example 1

The applicant's employment ends on 7.8.98. He collects holiday pay on 18.9.98, but could have collected it at any time from 28.8.98.

The holiday pay is not treated as capital because it is payable on 28.8.98, less than 4 weeks after the applicant's employment ended.

Example 2

The applicant gives and works due notice before her employment ended on 24.4.98. The contract of employment provides for part of her holiday pay, for a closedown period between 6.7.98 and 19.7.98, to be paid on 3.7.98. The employer agrees to the applicant's later request to pay the outstanding holiday pay on 29.5.98.

The payable date of the holiday pay would have been 3.7.98, but that date has been changed by agreement between the parties. The payable date is now 29.5.98. Because 29.5.98 is more than four weeks after the applicant's employment ends, the holiday pay is treated as capital.

Example 3

A partner's employment ends when the partner walks out without giving notice on 1.9.98. The partner's contract of employment provides for payments to be made on the last working day of the month and for one month's notice to be given of ending of employment by either party.

The employer relies on the contract to make a final payment of earnings and holiday pay on 30.9.98.

The holiday pay is treated as capital because it is payable more than four weeks after the date of ending of employment 1.9.98.

Example 4

If employment ends in February but outstanding holiday pay is not due until July, the employer can pay in February or on any date up to the due date in July. If the employer chooses to pay before the due date in July, the date on which payment is made becomes the payable date.